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How do you convert marshalian demand function in to hicksian demand function?
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∙ 11y ago
since I do not know the answer,guys if it is clear for you send the answer via habtamuasitatikie@gmail.com
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∙ 11y ago
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Explain what is meant by compensating variation and equivalent variation?
There are three central measures of welfare in economics:-Consumer Surplus (using a "marshallian demand function) -Equivalent Variation (using Hicksian demand function) -Compensating Variation (also using Hicksian demand function) Although consumer surplus is the most common measure of welfare it is flawed - it is based on a quasi linear demand function - one in which income has no effect on the demand for the good. However if there are large income effects involved; the demand curve is no longer a simple marginal value curve but one in which the value placed on the additional unit is heavily influenced by the amount spent on prior units. The consumer surplus now has no meaning in the marshallian demand context.We want to ideally examine the effect of a price change allowing income to alter but maintaining utility at some fixed level. Therefore we must use a Hicksian demand function - one in which a price change will be matched with a corresponding change in income such that utility is maintained at some level. We can now utilise equivalent and compensating variation to examine the changes in welfare of the associated price change.Equivalent variation is the income that you need to take away from an individual to make him equivalently worse off or better off following a price change.The Compensating variation on the other hand is the amount of income you need to compensate an individual following a price change so that he remains on the same level of utility. For Equivalent variation we maintain utility at the new price ratio whereas in the case of compensating variation we maintain utility at the old price ratio.Assuming the income effect is significant enough to disregard consumer surplus as an effective measure of welfare change and also a rise in price of good 1; the hicksian demand function which holds income constant will thus be steeper than the marshallian demand (assuming normal good - if inferior the opposite is true). The hicksian demand function relating to the original price level will be associated with a higher utility than the other hicksian associated with the new and higher price. However we cannot observe utility, hence we are using these functions. The equivalent variation will be smaller than the change in consumer surplus which in turn will be smaller than the compensating variation. The intuition behind this is that for a normal good more income is required to compensate the individual for a rise in price to maintain utility than income to be taken away from an individual such that he lies on a same lower utility.
What is the difference between demand function and demand schedule?
Demand schedule: a list of demand/price equivalencies. It can best be seen as a table with discrete points. Demand function: a continuous function of price-demand interaction. Main difference: schedule is discrete; function is continuous.
What is a demand curve and how it is different from demand function?
The demand curve demonstrates what happens when a product is demanded by customers. A demand function refers to an event that can affect the demand curve.
Why price on y-axis in demand function?
bez when demand function have price on y-axis, its mean that price have the inverse relation to the demand, in other words price lead to demand curve.
What is demand function.what are its determinants of demand function?
the determinats demand are prices and non price factor
Explain what is meant by compensating variation and equivalent variation?
There are three central measures of welfare in economics:-Consumer Surplus (using a "marshallian demand function) -Equivalent Variation (using Hicksian demand function) -Compensating Variation (also using Hicksian demand function) Although consumer surplus is the most common measure of welfare it is flawed - it is based on a quasi linear demand function - one in which income has no effect on the demand for the good. However if there are large income effects involved; the demand curve is no longer a simple marginal value curve but one in which the value placed on the additional unit is heavily influenced by the amount spent on prior units. The consumer surplus now has no meaning in the marshallian demand context.We want to ideally examine the effect of a price change allowing income to alter but maintaining utility at some fixed level. Therefore we must use a Hicksian demand function - one in which a price change will be matched with a corresponding change in income such that utility is maintained at some level. We can now utilise equivalent and compensating variation to examine the changes in welfare of the associated price change.Equivalent variation is the income that you need to take away from an individual to make him equivalently worse off or better off following a price change.The Compensating variation on the other hand is the amount of income you need to compensate an individual following a price change so that he remains on the same level of utility. For Equivalent variation we maintain utility at the new price ratio whereas in the case of compensating variation we maintain utility at the old price ratio.Assuming the income effect is significant enough to disregard consumer surplus as an effective measure of welfare change and also a rise in price of good 1; the hicksian demand function which holds income constant will thus be steeper than the marshallian demand (assuming normal good - if inferior the opposite is true). The hicksian demand function relating to the original price level will be associated with a higher utility than the other hicksian associated with the new and higher price. However we cannot observe utility, hence we are using these functions. The equivalent variation will be smaller than the change in consumer surplus which in turn will be smaller than the compensating variation. The intuition behind this is that for a normal good more income is required to compensate the individual for a rise in price to maintain utility than income to be taken away from an individual such that he lies on a same lower utility.
What is the difference between demand function and demand schedule?
Demand schedule: a list of demand/price equivalencies. It can best be seen as a table with discrete points. Demand function: a continuous function of price-demand interaction. Main difference: schedule is discrete; function is continuous.
What is a demand curve and how it is different from demand function?
The demand curve demonstrates what happens when a product is demanded by customers. A demand function refers to an event that can affect the demand curve.
How did countries react to the demand to convert paper money into gold?
The demand to convert paper money into gold was a demand beyond what the treasuries of countries could supply.
Why price on y-axis in demand function?
bez when demand function have price on y-axis, its mean that price have the inverse relation to the demand, in other words price lead to demand curve.
What is demand function.what are its determinants of demand function?
the determinats demand are prices and non price factor
What is demand and quantity of demand?
Demand is a function that defines how much of a certain good are the consumers willing to purchase at a given price.Quantity of demand is the quantity of a certain good the consumers are willing to purchase at a given price, as defined by the function of demand.
What is the function of demand?
In straight proportion
When markets make economics decisions convert resources into goods and services?
Demand will always force markets to make economic decisions to convert resources into goods and services. Without demand. There is any reason to convert the resources.
What is linear demand function and it relevant to a firm?
A linear demand function means that any change in the price of the output will have the same effect on the quantity demanded, whatever the price was. It has little relevance to a firm since the demand function is never really linear.
What is the function equation of demand?
The demand function relates price and quantity. It tells how many units of a good will be purchased at different prices. In general, at a higher price, less will be purchased. Thus, the graphical representation of the demand function (often referred to as the demand curve) has a negative slope.
When the demand for energy is low animals convert what?
When the demand for energy is low, animals convert glucose to glycogen to fat. Glucose is sometimes referred to as grape sugar or D-glucose.
